Tag Archives: wealthy

Customizing your luxury home too much might make it harder to sell

Posted on by

Arguing against McMansions and mass-produced homes, architects (like Sarah Susanka), environmental psychologists, and other argue that homes should be more customized for individual homeowners and residents. But could this customization make the home harder to sell? The New York Times investigates:

That, at least, has been Mr. Rooney’s experience, as potential buyers seem to find amenities he lovingly included in his dream home “more of a disadvantage,” he said. In fact, they try to use the custom extras as “a negotiation weapon,” claiming no use, for instance, for his personal salon or sports court…

Peggy Moriarty, an associate broker with Daniel Gale Sotheby’s International Realty, says that when it comes to high-end properties with lots of amenities, golf courses and the like “get beaten up by the weather” after the first year, and homeowners “get bored.”…

Similarly, home theaters are attractive, fun and “an added plus,” but often tucked down in a basement corner. “People like to hang out near the kitchen and watch TV in the family room,” she said. Except for teenagers or “basement dwellers,” even the most magnificent theater “after the initial creation doesn’t get used that much.” The lesson here, according to Ms. Moriarty: “The toys aren’t selling the house.”

Not all brokers agree. Mr. Elliott, a broker who owns his own firm, says there is demand for amenity-laden properties among foreign buyers. “When you get to houses over a certain level,” he said, “the more amenities, the better.”

Here is the trade-off: if you customize the home while living in it, some would argue that the home becomes more personal and relaxing while the best is utilized more effectively. On the other hand, certain customizations can limit your market or can lead the seller to have to make concessions.

Three other things strike me:

1. I assume that the people who buy these larger luxury homes also theoretically have the money available to convert the space they aren’t thrilled with into something they would rather have. Does this suggest that the wealthy don’t want to undergo many home renovations? In other words, are the wealthy more or less likely to want move in ready homes?

2. I would argue that the homes mentioned in this article, a $4.25 million home, a $14 dollar home, a $1.789 million home, and a $9.475 million home (and check out the luxury details of these homes such as a par-3 golf course or a 33-foot ballroom), are clearly mansions. Early on in the article, here is how these features and homes were summed up: “idiosyncratic extravagances that supersized homes in the McMansion era just had to have.” These homes may have been built in the McMansion era but not are not McMansions; these kinds of features are ones only the truly wealthy could afford.

3. How much does staging matter when selling one of these luxury homes and how much does it cost? There is a lot of space to cover…

Why two media sources ranking the world’s wealthiest people is a good thing

Posted on by

While Forbes had the corner on the market for years in compiling a ranking of the world’s richest people, there is now another option: this week Bloomberg released its Billionaires Index. One commentator thinks we don’t need both Forbes and Bloomberg examining this topic:

The Forbes list, available online today, is published every March. (Its companion, the “Forbes 400” list of richest Americans published in September.) It’s hard to not feel that Bloomberg’s outing takes some of the air out of Forbes usually-hyped cover story on who are the world’s richest people. This year’s edition proves unexciting not only because there were few shake-ups in the top spots from 2011’s list, but also because these rankings don’t appear all that different from Bloomberg’s.

Highlights from 2012’s version: With $69 billion, Mexico’s Carlos Slim Helu ranks No. 1 again for the third year in the row. (The magazine also profiled him.) Helu was followed by another 1,225 billionaires, starting with Bill Gates, Warren Buffett, and Bernard Arnault (of Louis Vuitton fame), who were also two through four last year. But beside no one being knocked off the top of this year’s Forbes list, it’s markedly similar to how rich Bloomberg News told us these folks were. Here’s a side-by-side comparison, with Forbes on the left and Bloomberg on the right.

So there are slight differences. Bloomberg has Arnault one spot lower and places fashion mogul Amancio Ortega down to seventh. Bloomberg puts the Koch brothers in the top 10, whereas Forbes had them both pegged at 12th. But isn’t this hair-splitting? If anything, the discrepancies show how hard it is to measure rich people’s riches.

What today’s Forbes list shows more than anything is that we don’t need two billionaires lists reminding us how wealthy the wealthy are. If we had to choose one, we’d go with Bloomberg’s, since it’s updated daily instead of once a year. But we doubt that will stop Forbes from producing its longstanding annual issue as long folks keep buying it.

I disagree. Here is why: I think that having two media sources looking at this topic will actually give readers better information. With two publications tackling the subject, I hope this improves their measurement of wealth for both publications. Perhaps we could average the rankings across the publications to get a more accurate assessment of what is going on. In the end, two sets of people looking at the data is better than one. Because Bloomberg is updating this list daily, perhaps this will push Forbes to update their lists more frequently and move away from a magazine era schedule to an Internet era schedule. The two lists do have some differences and this is not inconsequential. Lots of people are interested in this list and I’m sure some of the people at the top of the list have some interest in where they rank. Of course, these differences can indicate “how hard it is to measure rich people’s riches” but this doesn’t mean we should just throw up our hands and go with one list. Just because these people are really wealthy doesn’t mean that we shouldn’t have more fine-grained analysis of their financial holdings. (This sometimes seems to happen quite a bit in sociology: we assume we know about the elites and so spend more time studying marginalized groups but we have fewer in-depth studies of the elites who do have a lot of influence in society.)

A second issue: Bloomberg obviously thinks there is a market for another list that is updated daily and so this is a market decision as well as a journalistic interest in updating this information more frequently. The Forbes list always gets a lot of attention and Bloomberg probably wants to draw away some of that market. I imagine there is enough room in the market for both lists to survive, particularly as the two could serve different markets. However, it will be interesting to see how the rest of the media responds to changes in the Bloomberg list: if someone moves up from #3 to #2 in the next few days, will there be news stories about it? Will journalists providing background information about the wealthy reference the Forbes or the Bloomberg list?

Characters on GCB have taste because they don’t live in McMansions

Posted on by

I was amused to run across this description of the homes for the new ABC series GCB. While the women may be gossipers, at least they have good taste and don’t live in McMansions:

The production team spent four days scouting historic and modern houses in Texas, soaking up local color in the tony Dallas enclaves of Highland Park, Preston Hollow and University Park. “We visited homes, churches, country clubs, offices, stores, etc., and immersed ourselves in everything Dallas,” says Dugally, an Emmy nominee in 2004 for Arrested Development. The pilot was shot on location, though Los Angeles doubles for Dallas in the series. “It was not an easy task as Dallas is known for its large expanses of property, many without high fences or security and lots of brick architecture,” she adds. “Los Angeles is full of palm trees that don’t do well in Dallas. We were able to find several wonderful houses and a great church in the L.A. basin that serve as the exteriors for our show.”

Although Dallas certainly earns its bigger-is-better notoriety — Aspen’s housewife character has a French Country-style kitchen with a countertop deep fryer and three double ovens — Dugally notes that the houses they saw there weren’t McMansions. “Dallas is the most cosmopolitan city in Texas. Most of the money is old money,” says the designer. “I said, ‘Let’s give our characters taste.’ We made a very conscious decision that the look be over-the-top but still elegant.”

For the home of Amanda’s colorful mother Gigi (Potts), production designer Dugally wanted the interiors “to remain very upscale but traditional.” Front and center is the ornate, winding staircase with a landing topped by a gold leafed dome. Asian accents, custom-designed wallpapers by Astek in Los Angeles and white wainscoting are just a few of the design elements used for the warm gold- and cream-toned decor.

Gun-toting Gigi gets her own rifle-display room. “It’s completely taken from memory from a house I saw in Dallas,” says Dugally. Among the animal trophies is a mounted javelina. In high school, Bibb’s Amanda character had branded ugly-duckling Carlene as one of the creatures, a relative of the pig that’s native to the Southwest. Says Dugally, “Our executive producer Robert Harling wanted a javelina wherever we could get one, and he was so thrilled we found it. It’s so ugly.”

Read on for descriptions of some of the other houses.

Perhaps the characters on the show have some reason to have more taste – perhaps they are educated and/or have money. The inspiration for the fictional Hillside Park is supposedly Highland Park, a well-known Dallas suburb that is quite monied (a median household income of about $150k). If you have enough money, you don’t need a “traditional McMansion” to impress people because you don’t want to look like the nouveau riche and would prefer to show your wealth through refined and expensive accoutrements.

But the decision to have them avoid McMansions is still intriguing, particularly if they wanted the houses to be over-the-top. Even diva or “sassy” characters on TV can’t have McMansions because this would reflect badly on them.

The wealthy “walking away from the McMansions”

Posted on by

One commentator suggests the number of wealthy homeowners walking away from their large mortgages is on the rise:

Nationwide, foreclosures on loans over $1 million are up nearly 600 percent since 2008…

Walking away has even become something of a boast among the more-or-less wealthy – a solution with few downside risks that also marks the walker as a smart player.

That’s because California is one of a small number of “non-recourse” states. Here, the mortgage lender cannot recover the full value of the loan if the homeowner defaults; the lender can only recover the house, not the owner’s other assets.

The effect is producing a death spiral for loaded McMansions in some upscale neighborhoods. When owners default, they expand the inventory of over-priced houses, undercutting the value of similar homes in the neighborhood, lowering their resale value and prompting a new round of “strategic defaults” by other owners.

I wonder how lenders are responding to this issue. Would they move more or less quickly since these homes are worth more and the bank could make more money (though they might lose more on the mortgage)?

Another issue: how much does walking away from a large mortgage hurt someone who was able to get such a large loan in the first place? While foreclosures for “average homeowners” are often portrayed as huge problems (looking for somewhere to live, a hit to their credit rating), is this as much of an issue for those with bigger mortgages? According to this look at Beverly Hills, this decision is being made by some who can pay the mortgage but don’t want to deal with the decreased value of their homes:

Many are walking away not because they can’t pay, but because they judge it would be foolish to keep doing so…

She said she had seen in Beverly Hills a big increase in “strategic defaults,” in which owners who can still afford to make their monthly mortgage payment choose not to because the property is now worth so much less than the giant loan used to buy it during the housing bubble…

Bremner said she helped a client buy a Beverly Hills mansion last year that the prior owner had bought for over $4 million. He decided to stop paying his $3 million mortgage – even though he could easily afford it – when the value of the property had dropped to $2.5 million.

“They were able to comfortably cover the loan,” Bremner said. “They were just no longer willing to see the value of the property drop.”

If more wealthier homeowners are walking away from their mortgages, is there anything that should be done? Should they have harsher penalties if they have other assets to cover the mortgage? Should we be concerned that the Beverly Hills housing market is having difficulties, i.e. does this effect other housing markets or is it simply an issue between wealthy players?

It would be nice to have some exact numbers on how much this is happening across the country…

Disney building luxury community of Golden Oak

Posted on by

The Disney community of Celebration is well known (see earlier posts here and here) but the company is developing a more luxurious community called Golden Oak three miles from the theme parks.

At prices ranging from $1.5 million to upwards of $8 million, the developer promises a house and neighborhood with the hallmarks it has carefully cultivated for decades: meticulous attention to detail; extensive personal service; and, if you’re so inclined, a daily dose of Mickey, Minnie and the crew…

Although Florida abounds in upscale communities that promote a “lifestyle” of one kind or another, Golden Oak’s planners think the Disney brand is the not-so-secret weapon that sets it apart: Buy here, goes part of the sales pitch, and get years of virtually unlimited access to Disney properties in the surrounding area.

“We’ve never done this for anybody else,” explained Stacey Thomson, public relations manager for Golden Oak, who said that buyers in the current sales phase will get three years’ worth of unlimited VIP-access passes to the parks for the homeowner and four guests, in addition to such services as door-to-park van service, access to special events, and numerous other Disney-esque benefits that don’t accrue to the typical visitor…

Where Celebration was conceived as a full-fledged town with a large contingent of full-time residents and a share of units at a much lower price point, Golden Oak is a sprawling, 980-acre subdivision that will function more as a gilt-edged resort…

This is a great example of branding. If your company can be associated with ideas like quality, fun, vacation, and magic, consumers will go to great lengths to be a part of this. The reach of Disney is so broad that they can build communities and people are drawn to them because of the Disney name even though they could find comparable homes or amenities elsewhere.

While we know there are enough buyers to make this work, it would be helpful to hear more from Disney in what they are trying to do with Golden Oak. Here is “the story of Golden Oak“:

The story of Golden Oak begins in true once-upon-a time fashion. As a youth in Missouri, Walt Disney would lie beneath the spreading branches of his “dreaming tree” and let his imagination run free. It was here that Walt’s talents for storytelling and fantasy began to take shape into some of the world’s most beloved characters.

Years later, a scenic ranch in California’s Placerita Canyon proved an equally inspiring location for filming segments of The Mickey Mouse Club TV show. Walt Disney Productions purchased portions of the property in 1959 and, over the years, acquired more than 900 acres to reserve its quiet vistas for TV and movie productions and protect its harmony with nature. In fact, Walt and his family spent time relaxing and playing on the ranch.

The name of this ranch? Golden Oak, in honor of a storied tree there, under which some say gold nuggets had been found in 1842. From these illustrious origins, the legacy continues with Golden Oak at Walt Disney World® Resort.

The website for Golden Oak emphasizes a blend of neighborhood plus resort living. Will there really be a neighborhood here or is this more of a resort that can be called a “neighborhood” because it consists of single-family homes? Or does Disney think that without calling it a neighborhood, the development won’t be as attractive? If only you have the money necessary, you too can purchase this unique Disney blend.

I wonder if we can read anything into this development in terms of how it relates to Celebration. This wealthier development could be a marker of several things:

1. Disney has gone as far as it wants to go with Celebration type developments which are more geared toward “average” suburbanites. Disney now wants to take advantage of wealthier people who are willing to buy larger and more expensive homes these days.

1a. Does Disney consider Celebration a success or would they do a lot differently if they were starting a new community?

2. Disney finds these housing projects to be profitable and will pursue more of these in the future as conditions allow. It would be interesting to know how profitable the developments are.

 

Someone finally says it: “Huge houses are morally wrong”

Posted on by

If you read enough about McMansions or mansions, you might get the idea that there is a moral dimension underlying the critiques. One commentator finally just comes out and explain this moral view: “huge houses are morally wrong.”

Which is to say, the rich are welcome to live well, but not ridiculously well. Aside from the hundreds of lives of poverty-stricken Bangladeshis or whatever that likely could have been saved had our nation’s billionaires deigned to downgrade from a massive mansion to a mere McMansion, the people, eventually, just won’t stand for it. Your monuments to excess will become beacons for the pitchfork-wielding mobs, rich folks.

Don’t be stupid. Or too greedy. Huge houses are immoral just like gold plated cars are immoral and massive private jets are immoral. Because you don’t need them, and the money you waste on them could actually save people’s lives. This is an ideal towards which we all need to strive; not buying a mall-sized home is the easiest possible way to adhere to it. You can save those starving peasants and afterwards you will still be rich. So do it. Or don’t complain when the raging poors finally rage onto you.

The moral basis of this argument is attributed to Peter Singer. The argument seems to be this: that money that was put toward the giant house could have been used for more good if it had been given to those who truly need it. It’s too bad we don’t see what Singer thinks is the “maximum wealth” someone should be able to hold onto. Interestingly, the argument cited above in the two summary paragraphs seems to be a little different: you shouldn’t have a big house because the masses will resent you and come get you. You can’t appear greedy as people will hold it against you. The difference in tone is between being able to help more people with the money you saved by not buying the huge house (positive) versus you had better not buy that big house because it will be taken away from you (negative).

Morally, what’s the biggest house you can/should have? Is this house too big while these houses are morally superior? Can the size or price of your house be mitigated by its features or what you do with it? Does it differ by region to adjust for cost of living? Does your profession matter or whether you acquired the money yourself or it is “old money”?

The negative attention that building a big home can draw

Posted on by

While reading an article about some big homes that are still being built in the United States (are there enough wealthy people doing this to counteract data?), there is an interesting part about the negative attention these homes can draw.

One obvious drawback of building big: unwanted attention. Neighbors sometimes chafe at the idea of an edifice down the street the size of the White House. Reacting to McMansions that went up in the housing boom, some communities, like Chevy Chase, Md., passed rules that regulate more strictly how big houses can grow, says John McIlwain, a senior resident fellow specializing in housing issues at the Urban Land Institute.

Near where Mr. Pritzker’s home is under construction, neighbors are up in arms over another of Mr. McCoy’s projects, a roughly 70,000-square-foot compound (downsized from 85,000 square feet) awaiting permitting for Prince Abdulaziz ibn Abdullah ibn Abdulaziz Al Saud, son of the king of Saudi Arabia. The compound is on three lots and would include a main home of 42,000 square feet—part of it underground—a guest house, pool cabana, gate house and another residence of up to 20,000 square feet. The prince’s lawyer, Benjamin Reznik, notes other residences in the neighborhood are super-sized and says opposition has been “fomented” by neighbor Martha Karsh, the wife of Oaktree Capital Management founder Bruce Karsh. Ms. Karsh has hired publicists to attract attention to the project, he adds. “Newt Gingrich wishes he had that campaign going,” says Mr. Reznik.

George Mihlsten, a lawyer for a community coalition and Ms. Karsh, says the coalition hired his firm and that Mr. Reznik has hired outside help too, including a community-relations firm (Mr. Reznik says that was in response to Ms. Karsh’s campaign). “He likes to focus on Martha, but the truth is he and his client have created the controversy by proposing an outlandish plan and going behind the backs of the community to try to get it built,” Mr. Mihlsten says in an email, likening the scope of the project to a small community shopping center. More than 1,500 residents of Benedict Canyon signed a petition expressing their opposition to the project as it was originally proposed, according to a representative of the coalition.

The scope of these projects makes them extremely complex to construct. Finding or assembling the property can take several years, and the design and construction of a super-size project can take up to five years or more, builders say. (These days, lower labor costs in some areas can mean quicker turnaround times or better value.) Just finding parking for the 100 to 200 tradespeople that can be on-site for a big job, compared with the eight to 20 people typically working on a 4,000-square-foot home, can require planning; commandeering church parking lots is one standby.

If you have enough money, can’t you just budget some resources for dealing with the neighbors and/or going to court to make sure your home is built? But if your neighbors are also wealthy, perhaps you are in trouble…

The article hints at the regulations that many municipalities have put in place in order to limit these large homes. This leads me to several thoughts. First, are there communities that have intentionally left no or few regulations in place in order to make it easier for the construction of bigger homes? Another way to think about this would be to look at communities that have had public discussions about regulations for larger homes but then decided to do nothing. Are there communities that actually want these larger homes? Second, are these extra-large homes extremely concentrated in a few communities that have more relaxed regulations? Third, has someone ever looked into whether the level of opposition to a proposed big house is proportionally related to the size? For example, a house that is 500 square feet larger than the surrounding homes might receive one-quarter of the NIMBY attention of a proposed house 2000 square feet larger.

All those new Facebook millionaries won’t be buying McMansions

Posted on by

As Facebook prepares its IPO, you might not have considered how it would affect the real estate market in Silicon Valley:

Typically clients pay cash for the homes, he said, which can range anywhere from 4,000 to 15,000 square feet (372 to 1,393 square meters) depending on the size of the family.

Real estate agent Dawn Thomas said she is already seeing home prices rise in areas surrounding Facebook’s Menlo Park headquarters and expects that to continue…

Thomas described her tech-savvy homebuyers as “very, very green-minded” and in search of smaller, tech-equipped, energy-efficient homes with high-end amenities.

“They don’t want ‘McMansions,'” she said, referring to super-sized houses that can gobble up energy.

The implication: the young and wealthy wouldn’t be caught dead buying a home that could be considered a McMansion. If the home is indeed big, and I would say 4,000 square feet is McMansion territory and 15,000 square feet is a just a plain mansion, it has to be green and energy-efficient. Is this the same argument that Gisele Bunchen tried to make recently?

This makes me think that we might need a new term to describe an abnormally large home that is intentionally not a McMansion. A “green home” or “eco-home” doesn’t cut it because these homes are still much larger than the average size of the new American home (around 2,400 square feet). A “greenwashed mansion” but be more accurate but I don’t think these tech-savvy buyers would like the connotations of this term either. Playing off the “Not So Big House,” how about the “not so polluting house”?

In trying to preserve open space in New Jersey, the land falls into the hands of the wealthy

Posted on by

Here is an interesting argument from a northern New Jersey columnist: the state’s effort to conserve open space by offering a tax break for farmland has left most of the open farmland in the hands of the wealthy.

It’s in the New Jersey Constitution, has been since 1963. Farmland is assessed for property taxes at its agricultural value, not its development value. To qualify, the property has to be at least five acres. Subsequent laws require that it generate at least $500 a year in agricultural revenue.

The goal was and is to preserve some of New Jersey’s diminishing stock of open land before it is all turned into condos and McMansions.

The program is working. But open land costs so much that the people who can afford to buy it tend to be well-to-do. This is unfair, critics say, because it enables rich people to surround themselves with open space and views while real, dirt-under-the-fingernails farmers are forced out of state…

Unsurprisingly, some owners of such New Jersey properties are megabucks celebrities. The rock star Jon Bon Jovi owns seven farm acres in historic Middletown, near the shore in Monmouth County, on which he paid $104 in taxes in 2010. Steve Forbes, magazine publisher, paid $2,005 in taxes in 2009 on 450 acres in Bedminster, in the Somerset Hills.

And here are former Gov. Christine Todd Whitman and her husband, John, who own 167 acres in Tewksbury, in Hunterdon County, on which they paid $1,521 in taxes in 2010, and 65 acres in Bedminster, on which they paid $173.

This sounds like a situation of unintended consequences: the law was intended to keep farmland open in the midst of suburban development but because of rising land prices plus tax breaks, the wealthy benefit.

Of course, there are other ways to conserve open space in the face of development. Contrast the approach in New Jersey versus the actions of the DuPage County Forest Preserve. After World War II, the Forest Preserve was very aggressive in grabbing open land, particularly land around waterways. If I am remembering correctly, by the late 1960s the Forest Preserve had over 15,000 acres in a rapidly expanding county that grew from almost 155,000 people in 1950 to nearly 492,000 in 1970 to over 904,000 in 2000. This didn’t come without a cost: the Forest Preserve had to find money to fund these purchases and there were complaints about rising local taxes plus the debt taken on in bonds. Additionally, the Forest Preserve ended up in several tussles over land with municipalities as both the County and suburbs wanted to control land before it disappeared. Today, there are still complaints about the Forest Preserve as the over 25,000 acres are maintained with taxpayer dollars. At the same time, there are a number of very nice sites and the land, unlike farmland, is open for everyone to use.

So if it came down to providing tax breaks  for the farms of wealthy landowners or having facilities that are taxpayer supported but also available to all, which would you choose? Presumably there are other options to choose from as well?

Migration after a “millionaire’s tax”

Posted on by

A number of states are considering raising taxes for wealthy residents and some have argued that such taxes push wealthy people to move to another state. Here is a brief summary of some research on what happened in New Jersey after a millionaire’s tax was implemented in 2004:

A 2004 “millionaire’s tax” in New Jersey had little effect on migration, according to a study by Stanford University sociologist Cristobal Young and Princeton University sociologist Charles Varner published this year in the National Tax Journal. Moving from California to escape taxes is even more difficult.

“Many people in New Jersey could move 30 or 40 miles and find themselves in lower-tax Connecticut or Pennsylvania,” Young said in an email. “If you are in the Bay Area, it is a 500- to 700-mile move to competing urban areas such as Las Vegas or Phoenix. That is a tough move – you will be starting a new life.”

The New Jersey Department of the Treasury issued its own research in October that countered the Young-Varner study. The department is led by an appointee of Republican Gov. Chris Christie, a vocal opponent of a new “millionaire’s tax.”

In a state with 8.7 million residents, the department said that all tax increases – not just those on the wealthy – resulted in 20,000 fewer taxpayers.

So it sounds like both research studies could be right? Though I haven’t read either study, the loss of 20,000 taxpayers from New Jersey doesn’t sound like much. Additionally, there are a lot of reasons people could move and taxes are just one part of the larger business climate and cultural setting. Without clear trends in the data or interviews or surveys with people who leave, it would be hard to know that taxes were what pushed people out of the state.

The argument that it might be more difficult to move out of California because of greater geographic isolation is intriguing. I would think that distance matters less than other characteristics that draw people to California such as the weather and exciting cities. If geographic isolation is a key factor, we would see more movement in metropolitan areas that straddle states, such as New York City or Chicago where residents who want to protest or move because of taxes could live over the border in Indiana or Wisconsin and still be part of the region.

When states consider higher taxes for millionaires, why haven’t more millionaires acted like corporations who then threaten to leave and force tax breaks? Would it be too easy to vilify individual wealthy residents?

In the end, I wonder about the validity of arguments that people move solely in response to tax rates.